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Effective IR: Know Your Audience and “Tell It Like It Is”

As vice president of Investor Relations at Kraft Foods, Chris Jakubik plays a central role in shaping the consumer goods company’s communications with the world’s financial markets, as well as advising senior management. In this discussion on leading investor relations (IR) practices, he talks about the importance of realism and “telling it like it is,” understanding the analysts’ points of view, and starting with “a clean sheet of paper every time” to building effective investor relations.

Chris Jakubik

Q: What are some leading practices Kraft’s IR function is known for among the investment community?

Chris Jakubik: There are three things that we do that have helped us get recognized and they have to do with our approach to communicating with the Street: providing transparency, being realistic and bringing perspective to our communications and presentations. We try to present our performance, the state of our business and the opportunities in front of us within a fact-based, problem-solution type of construct, and we try to provide a thought-provoking perspective on our company and our industry along the way.

Transparency, realism and perspective—it’s a philosophy that I brought when I started in Kraft IR, and it comes back to the fact that I had been on the other side of the table and had to go through thousands of presentations and interviews of management teams. Telling it like it is and being able to put your company and what you’re doing in the context of everything else that’s going on in the industry is very much appreciated by analysts and investors. We’re very conscious in trying to prevent any spin in what we do because spin gets you nowhere fast.

Q: What other qualities are important for building a world-class IR function?

Chris Jakubik: It’s increasingly important to foster a deep knowledge of your company, your industry and the other sector constituents within it. That requires a good bit of business acumen. It also requires what I would call constructive dissatisfaction in the sense that you should never assume that what’s worked in the past is appropriate for the present or future with regard to presentation approach, Q&A, meeting schedules, conference attendance, etc. You have to start with a clean sheet of paper every time.

Q: How have the demands on IR changed over time from your perspective?

Chris Jakubik: We’re finding the demand from analysts and portfolio managers is for more knowledgeable IR professionals who can explain and educate them on emerging issues, corporate strategy and industry trends with context that’s on par with what C-suite executives could provide. If I can stand in the place of my CEO, CFO or head of supply chain and explain what we’re doing and why we’re doing it—at a level of detail and with the context that can help outsiders—understand not only Kraft, but also Kraft versus others in the industry, it’s very much appreciated by both sell-side analysts and investors.

Over the past few years, we’re finding that investors—the buy-side analysts and portfolio managers—are happy to take meetings with a knowledgeable IR professional instead of having to wait for access to the CEO or CFO. That’s been the biggest change, and I think it’s going to continue. Over time, we’ve seen more former analysts become IR professionals and that is likely to further investor comfort in IR-only types of meetings.

Q: Having worked under several CFOs in your career, how can IR support them effectively and what does IR need from them to be effective?

Chris Jakubik: IR can best support CFOs, and particularly new CFOs coming into the job, by helping them build an understanding of the audience. What are investors and analysts after, how do they think, and what motivates them? If management expects that they can just show up at a meeting and tell the analysts and investors “what they need to hear,” any IR effort is going to be ineffective. IR has to help management understand the analysts’ job more than anything else, and that will help them answer analysts’ questions in a way that’s going to be helpful to the audience. For CFOs in particular, many times, it comes down to helping the CFO, many of whom are CPAs, communicate effectively with CFAs. What IR needs from management to be effective is trust, respect and a seat at the table with the CEO and the broader C-suite. We need to understand how the management team thinks, what they’re doing to bring their plans to life and why.

Q: How do you view IR’s role when interacting with management, shareholders, analysts and others?

Chris Jakubik: Our role is to make sure that each of those constituencies has a realistic understanding of the views of all the other ones. So it’s to make sure that management understands the view of shareholders, analysts and other stakeholders, as well as make sure that the analysts understand the views of management.

Keeping management informed requires a constant dialogue. We have to stay on top of anything that’s related to Kraft and our industry. We look at analysts’ published notes as well as the notes we take from incoming calls and our conversations with shareholders, investors, owners and non-owners. And when hot topics or issues arise, we work with the CEO, the CFO and other relevant C-suite executives to make sure that our position—whether it’s a competitive position or just simple facts about what we do in a certain area—are well understood by both the investment community and the media.

Q: How do you address “value gap” issues that can arise between management and shareholders or analysts?

Chris Jakubik: As a former analyst, I know that dialogue is key, but it’s the type of dialogue you have that makes the difference. For example, management arguing valuation with analysts is like analysts telling management how they should change the way they run their business; it generally falls on deaf ears. Instead, a dialogue that focuses on identifying the gaps in perspectives on fundamentals and opportunity sets—the things that drive valuations—and discussing them directly, in a fact-based, well-supported manner is very effective. There are appropriate guardrails from the SEC, such as Reg FD [Regulation Fair Disclosure] on how far you can go, but I think engaging analysts and investors on the subject is wholly appropriate.

Q: What practices do you follow when you need to communicate a strategic change or initiative?

Chris Jakubik: Two critical factors I would note. Number one: you have to provide context for your audience, whether it’s the analysts who generally look within your industry for a benchmark, or for your ultimate audience, the portfolio managers, who look across industries. It also comes back to doing a lot of listening. We listen to what our broader consumer staples peers say and how they define themselves. We listen to analysts and investors to understand how they define what they’re seeing as good or bad, or value-building or value-destroying.

Number two: you’ve got to provide a thread of logic over time. So you map things out based on what you know or expect to unfold over the coming months and make sure that the construct of your communications and presentations today can accommodate the future.

Q: Do you have an approach to communicating with activist investors?

Chris Jakubik: Just like any other investor, I think the key is dialogue. If you study the history of the most contentious situations between activists and companies, more often than not, problems arose because management declined to engage in the type of frank, open discussion that they would normally have with a traditional investor. When you look at the people on the investment side, it would be rare to find investors or even activists who truly believe that they know your business better than you do. They may come to the table with some very strong views and convictions; that’s understandable because if you think about those on the other side of the table who might be investing billions of dollars in one company, they’d better have conviction. I think the more you embrace and educate activists and others with differing views, the more successful you’ll be in pacifying a lot of those views, particularly the ones that are misinformed or off-base. It’s much more productive than stonewalling.

Q: Some companies are seeking to expand their investor base outside the U.S. Is that an objective of Kraft, and if so, how do you manage that?

Chris Jakubik: It’s an objective to the extent that the investor base in other geographies has a mandate to invest in companies like Kraft. Over the last 10 to 12 years, mandates have opened up to a point where, for instance, pension funds in Europe can now invest in companies that are in global indices or purely North America. As mandates have opened up, we at Kraft want to make sure we’re capturing some of that demand. For a U.S.-based company to have European-based investors represent low teens ownership (as a percentage of shares outstanding), that’s doing pretty well. It’s all driven by demand, and you want to make sure you’re capturing as much demand as possible.

Q: How do you measure IR’s effectiveness?

Chris Jakubik: The way we measure ourselves and the tools that we use are largely qualitative. We will measure the consistency of our own views on our company, our industry or hot topics with what’s published in sell-side notes and in the media. So we scorecard. We also track our investor meetings during the year. We look at the mix of investors in our meetings and what the proportion is between lower-turnover, long-duration holders versus what we would call renters and volatility-oriented investors. We want to make sure we’ve got the right mix and are utilizing management time wisely.

Q: Back to the transparency issue you raised earlier, how does that work when you’re disclosing surprising or bad news?

Chris Jakubik: CEOs and CFOs work with investors best when they come in with a mindset of transparency and realism. It allows them to clearly and concisely define the topic and ensure that each external constituent understands what we’re going to do about it—with bad news especially but good news as well. More than anything else, there needs to be a consistent and seamless message across the organization. It’s not just what IR or the CEO or CFO says to investors, but what our communications team is saying to the media and how we’re conveying news to employees, what the sales and business units are saying to customers and vendors, etc. That takes a great deal of coordination and great partners in other functions of the company. Over my investor relations career, I’ve been lucky to have had great people to work with and learn from.

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